A Three-Legged Stool
By Wed, Mar 25, 2020
Hey Scoopers,
The market moved 10% or so on Tuesday. It’s a kind of move we haven’t seen for quite a long time. – more on that in the “Overall Market” section.
Beyond the overall market, one company’s CEO showcased how a strong leader can move the company’s stock price while investors showed that there is a limit to how much they are willing to pay for their favorite stocks. — more on that in the “What’s Up?” and “What’s Down?” sections.
Oh, by the way, we think the three-legged stool of market recovery is still missing one leg. — more on that in the “Water Cooler” section.
But, first, here is a recap of what happened in the market yesterday:
Market Recap
- U.S. markets: All three indices took a drastically different direction compared to the last few weeks and moved into the green zone. Scroll down to the “Overall Market” section to read more.
- Cryptocurrency: Bitcoin’s price hovered in the mid $6,000 range.
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Those Market Moves …
The Dow, the S&P 500, and the Nasdaq indices jumped up by 11.37%, 9.38%, and 8.12% respectively. We crunched the numbers for you and learned these kinds of market movements are quite rare in history. For example, since 1950, the S&P 500 index has only jumped more than 9% three times:
- October 21st, 1987
- October 13th, 2008
- October 28th, 2008
Typically, the stock market falls rapidly but crawls its way back up slowly. This time around, the decline was swift as expected, however, the recovery is coming back rapidly, thanks to algorithms that can go on a shopping spree in a matter of seconds.
What drove the market up?
Of course, the trillion-dollar stimulus package is the talk of the town in Congress. Everyone is expecting the package to get approved any day now. We also know about the extraordinary measures that the Fed has taken to come to the rescue of the economy. Combine that with a few possible good news about the possibility of treatment (albeit in early clinical stage), and that was enough for the stock market to light up like a Christmas tree with all the right colors.
The Power Of A Strong CEO
So, what happened?
Shares of Boeing (Ticker: BA) were up more than 26% on Tuesday. The stock recovered from last week’s pessimism valley, when a series of sell-offs pushed the stock price lower than $100 a share. Boeing is still far from it’s once nearly $500 per share price tag. However, the company continues to lead the air travel and transportation industry in the negotiations with the government for a stimulus package. Specifically, on Tuesday, the stock jumped after the CEO held his grounds and rejected the possibility of giving the government any equity in exchange for the stimulus. Investors typically like strong leaders and Boeing’s CEO just became one of their favorites.
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Let’s Draw The Line Here.
So, what happened?
Shares of Zoom Video (Ticker: ZM) were down more than 14% on Tuesday. It’s a bit counter-intuitive to see the company’s stock price falling on the day that most other technology stocks recovered from their recent lows. However, at 1682.46 times (yeh, you read it correctly) price to earnings ratio, a double-digit decline should not be a surprise. Investors drew the line and showed that there is a limit to the price they are willing to pay even for their favorite stocks.
A Three-Legged Stool Of Recovery
So what happened?
With the outstanding stock price recovering on Tuesday, it’s only fair to ask whether we are out of the ditch.
Let’s think about it together. We had the Fed cut back interest rates to encourage money to flow into the economy. We also have Congress reviewing big stimulus packages. But, is that all we need?
To answer the question, we loved reading about the analogy of a 3-legged recovery stool on CNBC. The fiscal and monetary policies we discussed are the two legs of the stool. The third one is some sort of assurance that the virus is contained. And, we know that hasn’t happened yet. The moral of the story is that we should be ready for further volatility.
As always, the stock market game is best played by staying consciously optimistic.
About the Author
The authors of this Scoop are the editorial team at Stock Card, led by Hoda Mehr. Hoda Mehr is CEO and Co-founder of Stock Card and the host of Renegade Investors podcast. She runs a community of 40,000 stock market investors and manages Stock Card's successful flagship portfolio, Roll with Our CEO, on Stock Card Portfolio Store. Hoda is an Economist with an MBA from Concordia, John Molson School of Business. She applies behavioral economics, data journalism, and storytelling to all aspects of her work. Before starting Stock Card, Hoda worked as a strategy and insights lead at technology companies including Symantec, Aimia and Sony. Create a free account to do your stock market research easily and mistake-free: Stock Card Stock Card
